By Melinda Janki LL.B,BCL, LL.M – International Lawyer
Guyana’s oil deal with Esso Exploration and Production Guyana Ltd, Hess Guyana Exploration Ltd and CNOOC Nexen Petroleum Guyana Ltd is riddled with illegalities including breaches of the Constitution and national laws governing the environment and petroleum. Transparency Institute Guyana Inc., Fair Deal and others have repeatedly exposed and condemned these illegalities. Guyanese are already challenging illegal oil in court.
By pushing for more money from illegal oil, Global Witness is undermining the rule of law and inevitably endangering people in Guyana. The rule of law is the first casualty of the ‘oil curse’ and nobody is safe in a lawless society.
The Guyanese people have demanded a ‘fair deal’ for their oil but there can be no ‘fair deal’ unless the government and the oil companies first obey national law, including legal obligations to protect the environment and natural resource base for present and future generations.
Global Witness’ figures for oil revenue are speculative, misleading and unreliable. They were repeatedly warned last year to correct their analysis. Global Witness’s claim that Guyana will get 52% of ‘revenue’ [Stabroek News 31st January 2020] appears to be a fabrication constructed by adding 50% of non-existent contract revenue to a questionable royalty of 2%. Global Witness also states that Esso Exploration and Production Guyana Ltd, Hess Guyana Exploration Ltd and CNOOC Nexen Petroleum Guyana Ltd can take up to 75% of ‘revenue’ for expenses. Either Global Witness believes in a magical 127% of oil revenue or they are using ‘revenue’ to mean different things in their multiplication exercises.
There are some obvious flaws. First, there is no ‘revenue’. Guyana gets oil, not revenue, because Raphael Trotman signed a production sharing agreement with Esso, Hess and Nexen, not a profit sharing agreement.
Second, it is disingenuous to talk about 50%. Esso, Hess and Nexen get 75% of production for their expenses. What is left is called ‘Profit Oil’. Esso, Hess and Nexen take 50% of that ‘Profit Oil’. Guyana gets the other 50%. Strictly speaking the oil companies get 87.5% of oil production while Guyana gets the remaining 12.5%. Since Guyana must pay somebody to collect the oil and sell it, Guyana’s actual ‘revenue’ clearly works out to less than 50% of ‘Profit Oil.’
Global Witness also appears to ignore the fact that the oil companies can take an unknown quantity of oil for free and that oil does not count as ‘Cost Oil’ (the 75% from which the oil companies can deduct expenses without any cost cap or time limit) or ‘Profit Oil’ (the remaining 25% from which Guyana collects its derisory share). All calculations which apply percentages to total production are therefore wrong. Third the royalty. This is the 2% that is added to the 50% to get the Global Witness figure of 52% of revenue. Under the Global Witness calculation the royalty is applied only to ‘Profit Oil’ not to all production. However, the royalty is due only if the oil is sold. What happens if the oil is used or refined into different products before being sold? Unless Global Witness can guarantee that Esso, Hess and Nexen will pay 2% on all ‘Profit Oil’ the Global Witness figures are not reliable.
The fatal defect in Global Witness’s predictions of billions of dollars of oil ‘revenue’ for Guyana is their failure to adjust their figures for the impact of climate change or the hidden costs of existing production. The International Monetary Fund has called for an immediate carbon tax increasing to US$75 by 2030. Climate change caused US$80 billion worth of losses in 2018 alone and the world requires deep cuts in fossil fuel emissions. Mark Carney, outgoing governor of the Bank of England, has repeatedly warned that the global economy has a carbon bubble. That bubble is valued at trillions of US dollars because oil companies hold fossil fuels that can never be burned. Global Witness’s assumption that the oil price will remain at US$65 a barrel for 40 years is untenable. Guyana’s oil is likely to become a stranded fossil fuel asset within a few years, leaving Guyana with a huge mess to clear up. Pollution of Guyana’s ocean, damage to marine biodiversity, and the threat of tanker collisions and well blowouts all carry costs that Guyana must bear but which Global Witness ignores.
This oil deal is a blank cheque drawn on the oil that belongs to the Guyanese people.
Guyana is only a few weeks away from a national election. A defective financial analysis that promises oil income of US$168 billion for Guyana raises the stakes considerably in that election. Global Witness’s interference is irresponsible and possibly dangerous in a country that is deeply divided and ethnically insecure and which in the past has suffered from tragic election violence.
Global Witness appears oblivious to the fact that the safety and security of the Guyanese people are more important than ill-gotten oil money.
